House Regulatory Reform Act of 2016

With a unanimous vote this afternoon, the House gave its final approval to the Regulatory Reform Act of 2016. The measure now goes to the Senate for its consideration.

The wide-ranging legislation, which continues the legislature’s ongoing commitment to reforming the North Carolina’s burdensome and outdated system of regulations, amends a number of state laws related to business, state and local government, agricultural, energy, environmental, and natural resources policy — including streamlining the reporting process to the legislature’s Environmental Review Commission.

“Our work is a continuation of the conservative majority’s effort to provide meaningful legislation targeting unnecessary and overly burdensome regulations,” commented Representative Chris Millis, who serves as one of the chairmen of the Regulatory Reform Committee and was one of the bill’s co-architects. “The House’s Regulatory Reform legislation addresses a broad spectrum of regulatory red tape facing property owners and entrepreneurs striving to prosper in our state — all while maintaining a commitment to protect health, safety, and our commonly shared environment.”

Regulations are rules made by state agencies to control the conduct of the public. Violating these regulations, even unintentionally, can carry substantial financial (and even criminal) penalties, and as such, have the form and effect of law. Over the last century, the General Assembly has delegated most of its authority to make and review these regulations to bureaucrats who are not directly accountable to voters, comprising an unprecedented (and largely hidden) growth in state government’s power.

We spoke at length with Representative Millis about the various provisions of the law.

What the Legislation Does

Part I: Business Regulation

Employment Status of Franchisees

Part one of the legislation deals with the relationship between a “franchisee” and a “franchisor.” Franchising allows an independent business person (the “franchisee”) to utilize the business model, operating support and infrastructure, marketing, trade name, and the products and/or services of another firm (the “franchisor”) in return for licensing fees. (For more information, including a brief glossary of franchising terms, please visit the International Franchise Association’s website.)

The legislation clarifies that the franchisor is not the employer of the franchisee (nor is the franchisee an employee of the franchisor) for a number of common employment claims and legal actions in state court.

In August 2015, the National Labor Relations Board issued a decision that changed the practical definition of “joint employer.” Prior to this ruling, a joint employer was defined as two or more companies exercising direct operation and supervisory control over an employee. Under the NLRB decision, the definition is expanded by applying an “economic realities” test which would include “indirect control” and possibly “potential, unexercised control” over employees.

Under established practice and applicable law, individual franchisees control wages, operating hours, hiring practices, working conditions and file their own taxes, entirely independent of the franchisor. Holding franchisors responsible for actions taken independently of their guidance or control represents a chilling effect on many businesses.

The concern is that under the federal interpretation, franchisors can be held liable for employment actions of their franchisees. The language in the legislation clears up how businesses and employees will be treated under state law.

“This provision will help offer certainty regarding how state law handles joint employment,” commented Representative Millis. “In light of the federal ruling, our action to clarify state law is a necessary reform by the legislature which sends a strong signal to both job creators and the citizens who work within a franchise system.”

Texas, Tennessee, Louisiana, Michigan, Indiana, Utah and Wisconsin have all passed similar legislation; Georgia and Oklahoma are in the process of also addressing the issue.

Part II: State and Local Government Regulation

Water and Sewer Billing by Lessors

Part two of the legislation clarifies that a landlord charging tenants for the cost of water or sewer service will not be considered a “utility.” Previously, both lessors of single-family homes and non-residential property were interpreted by the North Carolina Utilities Commission (NCUC) to be utilities if the lessor used pass-through water utility billing for tenants.

Specifically, the provision provides that, with the NCUC’s approval, property owners may use pass-through billing for water or sewer service on leased property while not meeting the definition of a public utility. This provision applies to both residential single-family properties and non-residential properties. Multi-family property owners already have flexibility to use pass-through billing.

“By reforming regulations to truly distinguish between those directly providing a public utility from those who desire to administer the payment of public utility billing, a great deal of common sense will be able to be put into practice through utility construction and administration, removing unnecessary red tape for utility providers and those receiving utility services,” explained Millis.

Under current law, the definition of a public utility includes a person “diverting, developing, pumping, impounding, distributing or furnishing water to or for the public for compensation.” The NCUC believes that by engaging in the practice of re-billing or reselling the cost of water and sewer, the owners are “furnishing” water to their tenants and are considered public utilities.

Pass-through billing has become commonplace practice for owner/lessors of many property types and many feel the current interpretation of Public Staff does not match the intent of the statute.

The Public Staff of the NCUC has sought a declaratory ruling from the Utilities Commission on this matter. If the Commission were to agree with the position of the Public Staff, North Carolina would stand in the unique position of holding that a direct pass-through of a water utility’s usage-based charges causes the landlord to be a public utility.

Language in Senate Bill 303, Section 2.2, (a) and (g), broadly clarifies that lessors of property may use pass-through billing on leased premises, regardless of whether the leased premises are contiguous. Senate Bill 303, Section 2.2, (g)(1a), also references and makes a distinction between residential property and non-residential property for these purposes.

Additional language in Senate Bill 303, Section 2.2, (g) (4a), directs NCUC to develop an application form for owners of single-family homes to pass-through water and sewer billing to tenants without being considered a public utility and provides that the Commission must approve the application.

Rezoning/Simultaneous Comprehensive Plan Amendment

Part two of the legislation also streamlines the process of approval of a zoning amendment, allowing a rezoning application to simultaneously serve as the application and plan amendment, saving months in time and expenses.

“Basically, this provision helps save time for citizens going through a local government rezoning process,” said Representative Millis. “It’s an example of much needed reforms to regulatory processes for the benefit of our citizens.”

Some local governments are requiring applicants to successfully complete a plan amendment process for the use they are seeking before a rezoning application may be processed if the use being sought by the rezoning request is not consistent with the comprehensive plan.

The North Carolina Court of Appeals held in Graham vs. City of Raleigh that “the amendment serves not merely the functions of amending the zoning ordinance, but also enunciates a change in the comprehensive plan itself, thus bringing about the necessary conformity or harmony between the amendment and the comprehensive plan.”

The process of amending the comprehensive plan can take between 6 and 12 months to complete. If the plan amendment process is successful it will then be followed by another 6 to 12 months or more to complete the rezoning process. Codification of this case will streamline the process resulting in a considerable savings of time and expense to the applicant.

Parent Parcel/Subdivision Clarification

Part two also updates the definition of “subdivision” to exclude land divided among heirs in a will or in cases of intestate succession (when someone dies without a will) and adds the applicable language to ensure that no subdivision fees, improvements or rules are applied to such cases. It also stipulates that when up to two parcels of land are subdivided from a parcel of at least 5 acres, that division of land shall not be interpreted as a “subdivision”.

In situations where land is being divided among heirs in a will or in cases of intestate succession, the courts have held that such a division does not constitute a subdivision. Williamson v. Avant (1974). The proposed language codifies this position. As a result, such a division of property shall not be subjected to subdivision rules for streets and utilities and other infrastructure improvements or fee-in-lieu payments and other related fees.

“What we’ve done here is to remove the red tape of going through a subdivision process for folks who want to leave land to their relatives,” said Representative Millis.

Relief is also being provided from subdivision regulations for the division of up to two lots from a tract of land larger than 5 acres. This provision will allow for the recordation of up to two new lots from a parent parcel without the need to comply with subdivision rules for developments. It provides that a tract or parcel may be divided once in a ten year period and ensures that resultant lots meet size, dimension and various local land use requirements. This will provide a substantial benefit to owners who are trying to assist children or others with a lot for a new home at minimal expense.

Statute of Limitations/Land Use Violations

Part two also establishes a six-year statute of repose on land-use violations. This gives local government six years to enforce violations that are visible from a right-of-way or from a public place. In addition, it establishes a statute of limitations on land-use violations, providing that local governments have three years to enforce a violation once aware of the issue. These two provisions are intended to prevent local governments from circling back many years after the fact to enforce easily identifiable land use violations against property owners.

“We have defined a timeline for cities to enforce these sorts of violations, which was entirely lacking in statute previously” said representative Millis. “This provision prevents bad actors in local government from abusing their power over land use violations.”

Program Evaluation to Study Nonprofit Contracting

This provision addresses broad concerns from North Carolina’s nonprofit community that are experiencing administrative and funding obstacles to providing essential services in North Carolina. To that end, the legislation allows for the Program Evaluation Division (PED) to take up a study to examine administrative burdens related to state grant funding for nonprofits and to examine options to streamline and improve the process.

“We’re finally beginning a much-needed discussion regarding how non-profits in our state are affected by regulatory obstacles imposed by government,” explained Representative Millis. “It’s our hope that the results from this study will lead to beneficial legislation for our state’s charitable organizations and the furtherance of their missions.”

The scope of this study provision intends to address burdensome red tape, late or non-payment from state agencies and mid-stream contract modifications. The intent of this provision is to improve and responsibly streamline state administration of in-demand nonprofit services.

Rename and Amend the Board of Refrigeration Examiners

This provision of part two broadens the pool of potential qualified Board members beyond applicants from the UNC system, and establishes licensure sub-classifications for individuals who only seek to perform service work rather than installation work and individuals who work with ammonia as a refrigerant gas, and to raise licensure fees. It also renames the State Board of Refrigeration Examiners the “State Board of Commercial Refrigeration Examiners.”

The State Board of Refrigeration Examiners is seeking to update its practice Act, housed in G.S. 87-52. These updates include:

Broadening the pool of potential qualified Board members beyond applicants from the UNC system;

Establishing licensure sub-classifications for individuals who only seek to perform service work rather than installation work and for individuals who work with ammonia as a refrigerant gas; and

To raise licensure fees.

The sub-classifications of licensure intends to address the following issue: Current statute provides for licensing persons who perform service and maintenance work. However, the Board has realized a number of applicants were passing the repair portion of the examination but not the installation portion of the examination, which served as a barrier to entry for many.

This provision would provide a means for these individuals to obtain a service license without a license to perform equipment installation. Additionally, the board wishes to separately test competency for those working with ammonia for public health and safety concerns.

Finally, this provision raises fees for annually renewed licenses from $40 to $80, and raises fees for new applicants from $40 to $100. Fees have not been increased since 1980. This increase is intended to reflect the current costs of appropriately administering oversight.

Amend Definition of Antique Automobiles

This provision clarifies that antique automobiles held in a pass-through entity owned by an individual qualify as a “special class of property.” This special class of property designation, which antique automobiles directly owned by an individual already receive, caps property taxes at $500 per vehicle.

Current statutes governing taxation of antique automobiles require that qualifying vehicles must be registered as such with Department of Motor Vehicles:

Attain a historic vehicle special license plate,

Primarily be used club or parade activities, and

Be owned by an individual.

If these conditions are met, the vehicle will be designated as a “special class of property.” The maximum tax imposed on an automobile meeting the conditions specified above is no more than $500.

However, many owners of these antique vehicles own them by way of pass-through entities. Under current law, the owners of these antique vehicles do not qualify for a “special class of property” designation because the vehicle is not technically owned by an individual, but rather a pass-through entity owned by the individual.

This provision allows a remedy by clarifying that pass-through-held vehicles are eligible for the “special class of property” designation, so long as the pass-through entity is owned by an individual.

Copies of Certain Public Records

This provision provides that public agencies that make data readily available online for free are not required to compile or manipulate data to satisfy a request for disclosure.

The Wake County Register of Deeds (ROD) office was the first in North Carolina to make all real estate images and indexes available to the public by posting them online. As a result of this move towards transparency, the Wake County ROD system is relatively limited with regards to data export functions.

In the recent past, Wake County has tried to accommodate requests for public information from real estate marketing entities such as Zillow, pursuant to General Statutes Section 132-6.2., which requires public agencies to provide records in the medium requested if capable of providing the records in that medium.

Wake County consumed two weeks of man-hours at a cost of approximately $3,000 in fulfilling the request. Another request was recently received for three months-worth of activity. Stakeholders also understand that other counties are receiving the same request for information and that other public agencies are likely to be affected by similar issues.

Despite the fact that the requested information is available free of charge already, the Wake County ROD has been told that if they do not provide the information requested in the specified “method or medium”, it will be interpreted as an unlawful denial of access under state law. This is especially concerning, as Zillow cites the fact that the county has demonstrated its capability of providing the information.

Many feel that this scenario does not reflect the original intent of the statute and that fulfilling these requests represents an undue burden for public agencies. This provision broadly clarifies that public agencies which make data readily available online for free, are not required to compile or manipulate data to satisfy a request for disclosure.

Stormwater Requirements and State Road Construction

This provision clarifies that when a contractor performs work under Department of Transportation (DOT) purview, they will be held to the same stormwater requirements applicable to DOT.

Some contractors on DOT road projects have received notification that they must comply with separate stormwater management rules from those being applied to DOT. This interpretation does not match the intent of the stormwater management rules for DOT projects.

“Regulatory uncertainty and the moving target that it presents is an incredible cost,” said Representative Millis. “This provision provides much needed certainty for individuals attempting to traverse our state regulatory agencies.”

The concern with the committee was that having an industry representative, such as an individual affiliated with another plant, performing inspections on the rendering facilities would put the facilities at risk of revealing trade secrets or confidential information to the inspector.

Solid Waste Amendments

This provision clarifies that the term “life of site” for sanitary landfills is defined as 60 years and requires all parties involved to agree to converting existing franchise agreement to “life of site” agreement. Last year, the General Assembly passed legislation that requires landfill permits and associated franchise agreements to be executed for the duration of the life of the site; governed by G.S. 130A-294.

The language also provides that an existing franchise agreement may be modified to reflect a 60-year duration, if both parties consent to the modification.

Riparian Buffers and Intermittent Streams

Directs the Department of Environmental Quality (DEQ) to study whether the size and allowable uses for riparian buffers for intermittent stream should be modified and whether the allowable activities within the buffers should be modified.

Transfer of Certain Conservation Easements

This provision clarifies that when an agency, local government, private company or nonprofit organization receive funds for acquiring a conservation easement or for acquiring real property pursuant to a restoration project, that the recipient of the funds may directly transfer the land to another agency or approved third party.

This change is intended to eliminate an unnecessary step, whereby all such receipts and paperwork currently must pass through DEQ before the land is granted to the ultimate holder. The measure is intended to streamline the process of executing conservation easements and restoration projects across North Carolina.

Part IV: Eliminate and Consolidate Reports

The final provision eliminates a number of redundant reports submitted to the legislature’s Environmental Review Commission (ERC) and lengthens reporting deadlines on unnecessarily frequent reports.

The consolidation and elimination of certain reports was a recommendation from the ERC. These reports were considered to be either redundant, needlessly frequent, or both. This section intends to streamline the submission and review of reports for both the submitting agencies and the ERC.